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As Nirmala Sitharaman assumed charge of the Finance Ministry, becoming only the second women finance minister after Indira Gandhi, she is now confronted with a dual data shock. GDP growth at 5.8% for Q4FY19 and unemployment at 6.1% means that slowing growth is real and so is joblessness.

Data Source: MOSPI

The GDP growth in the March 2019 quarter fell even below the lows of the two quarters subsequent to demonetization which had absorbed 86% of the system liquidity. If one looks at the break-up of the GDP numbers for the March quarter, there is pressure across agriculture and manufacturing.

What does this mean for Nirmala Sitharaman as she rises to present her first Union Budget on July 5? The agenda for the Finance Minister will be broadly along six imperatives:

How the GDP numbers will impact Union Budget 2019-20

The FM has underlined that she will focus on unleashing the animal spirits of capitalism. In the last five years, the growth push has come largely from government spending. This budget may not be just about growth triggers, but something akin to the kind of unshackling India attempted back in 1991.

The first big focus will have to be on privatization. Divestments may give government revenues, however, the government has done little to enhance the performance of PSUs. Take the case of PSU banks. When the public sector in unable to compete with the private sector, it really has no business to be in business. We have seen this phenomenon in telecom, banking, and now it is manifesting in insurance too. The government should give up its obsession with majority ownership and focus on a mix of reducing government stake to minority, bringing in private best practices and revamping management.

Unless agricultural growth crosses 4%, it will be unable to make meaningful contribution to GDP. The dream of doubling farm incomes by 2022 will remain just a dream. Agriculture requires far-reaching reforms such as corporate participation, mechanization, lesser dependence on erratic rainwater, better pricing mechanism, liquid futures market, and a solid post harvest infrastructure. This budget could focus on these areas.

It is time for India to create world-class capacities. In cement and steel, India is already the second largest producer, however, our capacities are a fraction of China’s. India needs to take a bet similar to what China did in 2008. It is time to zero in on 7-8 sectors where we can really build world-class capacities. The budget can start with the oil sector to reduce global dependence.

If the growth rate has to pick up meaningfully, export thrust has to be a part of the budget. Exports have been stagnant in the last 5 years. One can blame the slowdown and the trade war, but then India was always a very small part of global trade. Exports need to improve in sync with GDP share. You cannot have a 4% share of world GDP and less than 1% share of exports. The budget could narrow down to 10 sectors where India can boost exports in a big way in the next 10 years.

If high growth assumptions have to hold, the budget needs to successfully tap domestic savings through a robust secondary market. Indians sit on nearly $1tn worth of gold. The budget could seek measures to leverage this better. India still needs to spend over $2tn on infrastructure and this is only possible with robust debt markets. It is time to take liquid debt markets to the next level.

Finally, if GDP growth has to sustain at 7.5%, it is time to clean up the big financial sector mess. Companies such as IL&FS, Jet Airways, and DHFL flagrantly defaulting on payments is unacceptable. Growth can never pick up in the midst of such defaults. This budget must address the clean-up of the financial system.

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